In a bunch sprint for second place former Tour de France winner Cadel Evans edged out reigning Giro champion Ryder Hesjedal as the overall favourites finished in a small group 16sec back.
Paolini took over the leader’s jersey from countryman Salvatore Puccio of Team Sky, who was distanced on the final climb.
The Katusha rider now leads from reigning Tour de France champion Bradley Wiggins by 17sec with the latter’s Sky teammate Rigoberto Uran Uran third on the same time as his team leader.
The big winners were Evans and Hesjedal who needed to make up time after losing chunks on Sunday’s team time-trial.
Australian Evans took a 12sec time bonus for finishing second with Canada’s Hesjedal picking up 8sec.
Hesjedal is now seventh overall, 34sec back with Evans another 8sec behind that. Vincenzo Nibali is fifth at 31sec.
The Canadian was the main protagonist in an exciting end to the stage.
Around 20km from home Hesjedal’s Garmin team upped the pace on a tough gradient before their team leader sprung a surprise attack on that final climb.
Nibali’s Astana team took up the chase and reeled in Hesjedal but the reigning champion kept the pressure up on the descent before Paolini burst clear.
Hesjedal’s initial attack had momentarily dropped Evans but the BMC rider recovered and by the end he was the main winner amongst the overall contenders.
Wiggins finished comfortably in eighth place in the reduced bunch.